Alternative dispute resolution (ADR) helps consumers resolve disputes with traders when they have a problem with a product or service that they bought e.g. when a trader refuses to repair a product or to make a refund to which a consumer is entitled.

ADR entities are out-of-court (non-judicial) entities. They involve a neutral party (e.g. a conciliator, mediator, arbitrator, ombudsman, complaints board etc.) who proposes or imposes a solution or brings the parties together to help them find a solution.

Some of these entities operate fully online and are called online dispute resolution (ODR) entities. This can help solve disputes with online purchases, when the consumer and the trader are located far from each other.

ADR and ODR are usually low-cost, simple and fast procedures and are therefore beneficial to both consumers and traders, who can avoid court costs and procedures.

ADR and ODR are not internal customer complaint services run by traders.

Why is the EU promoting ADR and ODR?

Well-functioning ADR procedures across the EU will encourage consumers to seek solutions to the problems they encounter when buying products and services in the Single Market. This will help them save money that they can invest in a better way.

In addition, efficient ODR procedures will boost online purchases, in particular from traders in other EU countries. More online and cross-border trade in the EU will give consumers more options to choose from and will help them make the best deal. It will also provide businesses with new opportunities and help drive economic growth.

All EU consumers are entitled to equal access to consumer redress. Therefore quality ADR entities should be available for all types of consumer disputes in all EU Member States. Consumers and traders should also be aware of such opportunities.

II. THE NEW LEGISLATION

What changes will the new legislation bring?

The ADR Directive will provide for full ADR coverage at EU level. This means that there will be an ADR procedure available for all contractual disputes in every market sector (e.g. travel, banking, dry cleaning) and in every Member State. The sectors of health and education will not be covered by the ADR Directive. In addition, all ADR entities will have to meet quality criteria which guarantee that they operate in an effective, fair, independent and transparent way. Finally, traders will need to inform consumers about ADR both at the time of the purchase and when a problem arises.

The ODR Regulation will enable EU consumers and traders to submit disputes arising from online purchases to ADR online, thanks to the EU-wide dispute resolution platform (‘ODR platform’). The ODR platform will link all the national ADR entities. This single entry point is designed to be a user-friendly and interactive website, available in all EU official languages and free of charge. Online traders will also provide an electronic link to the ODR platform on their websites to inform consumers.

Member States will have 24 months after the entry into force of the Directive to transpose it into their national legislation. That takes us to mid-2015. The ODR platform will become operational six months after the end of the transposition period.

How will the ODR platform work in practice?

Consumers who encounter a problem with an online purchase will be able to submit a complaint online through the ODR platform, in the language of their choice. The ODR platform will notify the trader that a complaint is lodged against him. The consumer and the trader will then agree on which ADR entity to use to solve their dispute. When they agree, the chosen ADR entity will receive the details of the dispute via the ODR platform.

The ODR platform will be connected to the national ADR entities set up and notified to the Commission, in line with the new rules of the ADR Directive. The platform will help speed up the resolution of the dispute by allowing ADR entities to conduct the proceedings online and through electronic means. A set of common rules will govern the functioning of the ODR platform. These will include the role of national contact points acting as ODR advisors in their respective countries. Their task will be to provide general information on consumer rights and redress in relation to online purchases, assist with the submission of complaints and facilitate communication between the parties and the competent ADR entity through the ODR platform. For this purpose, ODR advisors will also be linked electronically to the platform.

Furthermore, these new rules will provide for ADR entities to settle a dispute within 90 days.

How will consumers and traders benefit from the new legislation?

In 2010, one in five consumers in the EU encountered problems when buying goods or services in the Single Market, leading to financial losses estimated at 0.4% of the EU's GDP. Only a small fraction of consumers sought and secured effective redress.

It is estimated that if EU consumers can rely on well-functioning and transparent ADR for their disputes they could save around €22.5 billion a year, corresponding to 0.19% of EU GDP.

This figure only includes direct financial savings, and does not account for less tangible factors which are also important for a well-functioning market, such as increased confidence, trust, customer relations and business reputation.

Consumers and traders will be able to solve their contractual disputes online or offline, and at local or cross-border levels, through out-of-court dispute resolution entities (ADR entities). This will enable them to solve their disputes in a simple, quick and inexpensive manner, away from courts.

In addition, consumers and traders will be able to use the ODR platform for online disputes and submit online in any of the EU official languages. This will help them solve cross-border disputes, particularly when the parties live in different Member States and speak different languages.

III. BACKGROUND

What is the political background of the new legislation?

The ADR and ODR package is one of the twelve key actions for the Single Market Act I, while ODR is also identified as an important action of the Digital Agenda for Europe. As a priority initiative of the Single Market Act and of the Digital Agenda for Europe, ADR and ODR are among the EU-level proposals with growth potential presented in the 2012 Annual Growth Survey.

In December 2011 and January 2012, the European Council called for a quick adoption of the ADR/ODR proposals through a fast-tracked ordinary legislative procedure, in order to reach an agreement by June 2012.

What has been done so far at EU level?

The European Commission issued two Recommendations (in 1998 and 2001), defining common principles for efficient and effective ADR entities.

National authorities have informed the Commission about those national ADR entities which they consider compliant with these principles. The Commission keeps a database of such 'notified' ADR entities.

However, about 40% of the existing ADR entities are currently not notified to the Commission as compliant with the two Recommendations.

The EU Commission also co-finances the European Consumer Centres' Network (ECC-Net) to help consumers contact the appropriate ADR entity in another Member State in case of cross-border disputes.

Another EU-wide network, FIN-NET, brings together ADR entities which handle cross-border disputes between consumers and financial service providers.

What is the state of play of ADR/ODR in the EU countries?

There are currently more than 750 ADR entities in the EU. Their composition and approach vary not only across the EU but even within the same country.

In most Member States, existing entities handle consumer disputes in a limited number of sectors only (in particular in the regulated sectors, including telecommunications, energy, financial services as well as travel and tourism). In some other countries, entities exist only in specific regions.

This means that – despite a large number of entities – there are significant gaps in the coverage. In some countries (e.g. Slovakia and Slovenia) there seems to be no recognised ADR entities. Elsewhere, the system needs further development.

As a result, European consumers do not enjoy the same level of access to out-of-court resolution across the EU.

Less than half of the existing ADR entities notified to the European Commission meet the quality criteria set in two Commission Recommendations.

Consumers and businesses know little about most of the existing entities and therefore rarely call on them for help.

Furthermore, there is no current obligation for national public authorities to regularly monitor the use and effectiveness of the ADR entities, with particular focus on Commission's quality criteria (such as suitable qualifications, impartiality, transparency, effectiveness and fairness).

As for online dispute resolution, only few existing entities in the EU offer the option of handling the entire dispute resolution process online.

However, most of the existing ADR entities share some features, which are likely to be maintained under the Directive:

Most disputes are resolved within 90 days.

Most ADR procedures are free of charge for consumers or inexpensive to use (below €50).

The ADR process is perceived by both consumers and traders to be simpler compared to court proceedings.